Taxing taxis was a headliner this past week, and it opens the usual debate around how the taxi industry should be paying taxes—but this is not that important. In a new directive, the Minister of Transport signals a roadmap for the taxi industry to lean toward regulated wages and shift their assets and operating licences to a registered business with the next 7 years.
Naturally the debate will revolve around anecdotal sentiments about how big the industry is, using crude estimates; how much it pays in levies and Value Added Tax; and cashless-payment issues in addition to subsidisation.
However this raises issues about whether non-taxation is a form of indirect subsidisation, and if taxation prior to subsidies is mandatory then would this affect the commuters’ pockets?
These issues are useless unless we unpack what is really required to operate in the taxi market, what has been done to ensure compliance and what these new directives could mean for owners, operators and commuters.
Market compliance, tax is only a part of it
The real question does not start at the revenue office, but instead we should start the conversation at the point of entry: operating licences.
Provincial Regulatory Entities are responsible for the allocation of operating licences. They are fundamentally responsible for approving applications in which tax compliance is a pre-requisite.
In order to obtain an operating licence, which is a permit to operate a specific route, an owner must comply with regulations such as:
- A verified tax clearance,
- A statement that they will comply with labour laws (sector specific determinations),
- A road worthy certificate, and
- Proof of insurance.
Given that there is a relationship between the number of vehicles, passenger volumes and revenues generated it must be determined whether an operator should be issued with a licence or not. The PRE office is expected to consult the local municipality involved and the respective Integrated Transport Plan.
Upon approval from the local municipality, the licence should be issued in line with the recommendations or Operating Licence Strategy in the ITP. However, this process does not occur as expected.
In the Gauteng Inquiry into Taxi Violence, some evidence leaders described how public officials are involved in the issuance of illegal operating licenses at a fee. In Kwa-Zulu Natal some few officials were apprehended by the Hawks because they were involved in selling operating licenses.
Anyone with their ears on the ground would have been aware of this long standing issue. It is not surprising that when the National Taxi Task Team made their recommendations, they offered officials the room to declare their conflict of interests appropriately. Yet, for some reason, interests remain vested to an extent that compliance is eroded and trust is broken.
On the 19th June 2020, the Department of Transport issued a statement indicating that there were 137 000 legal taxis, and 113 000 illegal ones. Illegal operators are non-compliant with the above mentioned requirements in applying for a license (and other issues too).
The challenge however is that PRE is expected to issue the licenses, but compliance at market level is not something that is mandated.
In the National Land Transport Act, there are data-driven clauses which require accurate and consistently updated information about the public transport market. At provincial level, the ability of a small PRE office to monitor, administer and coordinate multiple taxi associations, routes and commuter issues is imprudent and beyond that sphere of government’s focus.
While the taxation issues is important, the immediate problems need the municipalities to not only have transport functions devolved to them, but also some power to regulate the minibus taxi market.
In the Gauteng Inquiry released on the 31st January 2021, one of the recommendations highlight the urgent need to capacitate municipalities about their responsibilities, as their irresponsiveness to PRE, or the lack of integrated transport plans, creates opportunities for operators to flood the market—creating conflict (fuelled by associations and police in some cases).
An ideal scenario is where the local municipalities are the custodians of the compliance data for each operator across all associations within the municipality. This type of checklist would require the transport unit to be effectively engaged and trusted by the local industry to use the data provided for the purpose of ensuring compliance with tax, labour and other market related requirements.
Furthermore, if done correctly, municipalities could have a stream of quality information for transport planning purposes without outsourcing the bulk of the ITP spread over a 5 year intervals.
Signals of a new era in the Directions on Taxi Relief Fund effective 31 March 2021
In previous articles I’ve argued that the minibus taxi industry is more formal than it is informal, and that it may well be an essential service that needs to be professionalised.
There are substantive signals of a new era of compliance incentives emerging, to lean the industry closer toward corporatisation.
Minister Fikile Mbalula signed the “Directions on taxi relief fund to mitigate the impact of COVID-19 in the Taxi Industry, 2021” effective 31 March 2021.
The directives are partly to provide a pathway for the R1.35bn ex gratia relief allocation, a first attempt for the state to transfer money directly into the minibus taxi industry.
To qualify, the owners must be citizens, have valid Operating Licenses or evidence of renewal, and be part of a registered taxi association; for ride hailing drivers do not have to be part of an association, but they should have a professional driving permit.
The conditions attached to the allocation posit that the taxi operation must be a registered business, registered for Income Tax, and relevant corporate taxes. This opens room for a database of all businesses operating taxis.
Another condition is related to the provision for labour regulations, in which the registered taxi business must also register employees with skills development, unemployment insurance and occupational health and safety provisions by the labour regulations.
Lastly, there is also a drive toward stabilising the operator’s income by opening room for compliance with the “Sectoral Wage Determination”, that is at least minimum wage, and wages for transport operators.
The subsidy allocation may be greater than expected
The directive is a voluntary effort, meaning if owners want to tap into the ex gracia allocation of R1.35bn, then they would comply, but the incentive in my view is quite small.
A more accurate incentive would account for actual percentage of route-level revenues lost, which could accelerate this process, but the impact of commuters would need to be softened by a subsidy regime, or a rationalised market—probably both.
In practice this process is a signal of how the subsidy allocation programme may gradually begin over the next 7 years.
In this frame, the combined effect of tax and labour compliance would probably shift the cost base, which could lean the public transport market closer to its “true” prices. However, the supply side costs may also rise as maintenance and other asset based cost factors are formally introduced into the market through corporatisation.
Of course, this journey may also open new opportunities for labour organisations to form around owners, and operators and the market in general. Triggering a different dimension to the taxi market reviving between associations and unions.
My view is that, the statements by the Finance Minister, and the public debate around taxation in the taxi industry (including ride hailing) needs to take a more cautious tone. This process will take longer than anticipated given the vast array of compliance reforms, their cost implications and impact on commuters are all embedded in the market.